Conflicting Cross-Currents, Heading Into Year End

When it comes to the stock market, I am inherently bullish. Over a long enough time line, the stock market goes up (no zerohedge). However, these letters affixed to numbers have their own little idiosyncrasies in the short term, ebbing and flowing with the emotions of the time. For me, the trade for 2016 is a very simple one: fade rallies, position longer term accounts into counter cyclical names. For growth, focus on companies generating high gross margin free cash flow.

I’ll get into the details of my plan this week, when I unveil my predictions for 2016.

The one thing that I can’t seem to shake is the level of underperformance from our preeminent hedge fund industry, with grotesque performance data out of ValueAct, Greenlight and Pershing Square. I know there will be a handful of you that will smugly dismiss those three funds because of their eccentric leaders. Nevertheless, they’ve demonstrated a rich history of outperformance for many years, just like Le Fly.

Why, if I were you and I saw Le Fly down big for the year, I’d be awfully reticent about fading him the following year. The laws of averages do not permit extended lengths of underperformance for people like me. Therefore, the same rules should apply to others, who’ve demonstrated a certain know-how in this market, uncommon to most.

I guess what I’m saying is, I am bearish, but open to the idea that somehow, someway, stocks will grind higher.

Everything hinges on oil.

Without the support of higher commodity prices, there is zero chance for a rally. The way I’m positioned now, I’m expecting a rip your face to the skeleton bones rally in commodities, just like last year, perhaps lasting until March. I am betwixt between an overly conservative longer term time horizon and a short term bullishness, not seen since January of last year. Couple that with the fact that I am in the midst of a transitional phase in my investment management career, I am wholly consumed with reshuffling the decks this final week of trade.

Heading into the final week, my top holdings, in random order, are JAZZ (don’t sleep on me), PAH, FCX, SHAK, COST, VRX, PANW, GILD and APPL.

Two thousand and sixteen will not be a year of reckoning for basic resource stocks because there isn’t a lot of debt maturing over the next 12 months. However, as we make our way into 2016, people will start to look out towards the future and make judgement calls as to whether or not a company will be able to restructure the debt to stretch out looming maturities.

Here are some choice names and the amount of debt maturing within the next 3 years.

FCX: $4.28 bill
CHK: $5.66 bill
MT: $3.35 bill
BTU: $1.68 bill
WLL: $1.45 bill
CLF: $311 mill
AKS: $1.26 bill
VALE: $798 mill
ENB: $775 mill
APC: $4.65 bill
ABX: $1.98 bill
WFT: $2.44 bill
MUR: $550 mill

The greater concern is cash flow, of course. This is a mere snapshot of what beckons in the not-so-distant future for companies who rely upon commodities, which have been ravaged over the past year. For many of them, both credit and equity markets are closed. As losses mount, it will be exceedingly difficult for them to sustain payroll expenses.

Over the past year, free cash flow in the basic resource space checked in at a cool NEGATIVE $120 billion. Since oil has never been lower, I suspect losses will only accelerate to the downside.

Control yourselves, lads. The final week of trade is upon us. As we regale ourselves in the splendor that was 2015, celebrating over gigantic ice buckets filled with uncorked bottles of champagne and exotic foods from the far reaches of the world, I wanted to do a quick review of this year’s best performing stocks.

The biggest winner was NFLX, up 140% for the year. Americans have become a slothful type of creature, always lounging about the living room in search for entertainment. In the old days, I had 7 channels on my television (2,4,5,7,9,11 and 13). Nowadays, kids have a thousand; but it isn’t enough. They need video on demand, which is where NFLX fits in for a very affordable $7.99 per mo. Granted, NFLX is entirely useless if you want to find new movies; but they have been producing some solid programming, like House of Cards, Marco Polo and Bloodline, which is driving subscription numbers.

CTRP was up 114% last year, after striking a deal with PCLN. To be honest, these Chinese companies baffle me. They’re all really cheap on paper, until, of course, it’s revealed that they’ve been scamming the whole time, via accounting irregularities.

AMZN was up 113%, serving as a deflationary force in retail, taking a wrecking ball to brick and mortar. I use Amazon all the time. I’m a prime member, which also gets me a NFLX quality movie streaming service for free. Over the years, Amazon has really stepped up their branded programming, with quality shows like Mozart in the Jungle, Hand of God and Man in the High Castle.

ATVI was up 95%, as kids rot their brains playing Call of Duty until their parents take a sledge hammer to their video game console.

NTES and QUNR were up 88%. More chinese trickery.

AYI was up 71%. This plays along with the gains in HD and LOW, as Americans upgrade their lighting system to LED. Although CREE has been unable to capitalize on the LED trend, AYI has been crushing it, on residential, commercial and industrial applications. This is a really interesting name.

NVDA was up 68%, one of the few semis to crush 2015. They make chips that enhance video game and editing applications for computers. Nerds love their stuff.

OA produces bullets for the military. It enjoyed a 66% surge in 2015. I wonder why?

Other winners of note include: MANH (+70%), CYT (+64%), EDU (+63%), TYL (+63%), GPN (+62%), ZNH (+61%), VLRS (+97%), SBRCY (+57%), CVC (+57%), HRL (+57%), EXR (+55%), MSCI (+54%), NTT (+54%), VRSN (+54%), YOKU (+52%), TSS (+51%), FSLR (+50%), RAI (+49%), VLO (+49%), EXPE (+49%), INCY (+49%), SBUX (+48%), ALTR (+48%), IBKR (+48%), VMC (+47%), HCC (+47%), DXCM (+47%), TMUS (+47%), AVGO (+47%), JBLU (+47%), HLF (+46%), STZ (+46%), EA (+46%), HOLX (+46%), PANW (+45%), ULTA (+44%).

I remember back in the 80’s Gene Wilder was the man. He’d team up with Richrd Pryor in a bunch of hysterical movies, usually playing the air headed side kick.

In this classic, he is Dr. Frankenstein, a long lost relative of the Dr. Frankenstein, who left the young American Dr his castle and everything that comes with it, including Igor.

I’ve seen this movie again, for the first time in maybe 20-25 years, and it was absolutely  hilarious.

There’s a lot of noise being circulated by financial journalists who don’t know the first or last thing about investing. They spit out AMZN numbers and revel in their genius for informing the public that online sales were robust and brick and mortar sucked.

But real people know all of that is a bunch of horseshit, when it comes to gauging the balance in our brokerage accounts.

AMZN was flat for the past month, meaning you made ZERO profits playing the great migration over to online sales. But you know who banked coin?

Maternity, a hideously ugly female bag maker, online furniture retailer, plastic containers, soda pop, online coupons, guns, and a bunch of brick and mortar zombie stocks.

Here are the share price winners for this year’s retail holiday extravaganza.

It’s that time of year again, America. Go visit your family and stare into the abyss of your cellular mobile telephone device, as the food gets passed around, the alcoholic beverages flow and the many thousands of dollars you’ve spent on gifts goes entirely unappreciated. The pagan holiday of Xmas is one of my favorite forms of expressing hedonism. After all, I am a well mannered christian, one totally deserving of gifts, drink and beverage.

Like always, I will head towards the borough of Brooklyn this evening, to partake in the many traditions that I’ve grown to deserve. I believe lobster tails and shrimp are on the menu, staples in any Italian feast. Also, I will be making my famous mulled wine, something that I picked up a few years ago. I make it so strong it decimates any man or woman in its path.

We’re heading down the home stretch of 2015 now. I’d like to thank all of you, from the bleachers section of the reader class of persons, for visiting iBankCoin on a daily basis, helping to spread our brand of financial propaganda to the far reaches of the globe.

Did you know iBC is read in 66 countries, around this wonderful globe? Indeud.

At any rate, I had a good year and I hope most of you did too. Next week, I will be unveiling my 2016 picks and will be finalizing my GARP portfolio for Exodus, which is a semi-annual managed portfolio of growth stocks.

Okay lads, time to turn up the Frank Sinatra christmas melodies, watch a little It’s a Wonderful Life in the background, and stuff your faces with all sorts of delicacies. Get the kids tucked in early, so that Santa Claus can break into your house, via unguarded chimney, to 3x inverse burglar your house.

Merry Christmas,

Fly

Ex out oil, gas, gold, copper, nickel, aluminum, tech gadgets, shit sold on Amazon, financial services, retail sales, dry bulk shipping, etc.: THERE ISN’T ANY DEFLATION. Ergo, the Fed can hike to its moronic heart’s delight, said the sages at Goldman Sachs.

“There is little evidence of a broader global deflationary force at work that extends beyond the impact of commodity-price declines and dollar appreciation,” David Mericle and Daan Struyven told clients in a report on Wednesday.

Such conclusions leave Goldman Sachs predicting a moderate acceleration in inflation in 2016 as the economy reaches full capacity.

Ex all of that shit out.

If the CRB index is too biased for you, maybe have a looksy at the old inflation rate.

If that was a pulse rate, the doctor would be taking the defibrillators out and administering some nitroglycerine to the patient.

The Abe government is partaking in all sorts of spending, as their population focuses its energy on masturbating to pictures of robots and anime. The older generation,  decrepit as shit, generally disgusted with the impetuous youth, can do nothing but lever up the economy until the fucking thing falls apart.

The 5.1 trillion yen ($42 billion) spending package for the year starting April is an increase of 1.5 percent from the current fiscal year, marking the fourth straight annual rise under the administration of Prime Minister Shinzo Abe. It accounts for just over 5 percent of the overall 96.7 trillion yen budget, also approved Thursday.

Major purchases include:

• 173 billion yen for an Aegis-equipped anti-ballistic missile ship
• 108 billion yen for six F-35A fighter aircraft
• 103 billion yen for 17 SH-60K patrol helicopters
• The figure also includes increased funding for the realignment of U.S. troops in Japan and a new government plane for use by the prime minister on foreign trips

The budget is the first since parliament passed legislation this summer to expand the role of Japan’s military to enable the nation to assist an ally under attack. The legislation led to rare public demonstrations in Japan that triggered a plunge in support for the Abe government.

Or, they can always invade China again and get into the concubine business, seize rice supplies, and partake in Frankensteinian medical experiments.

Aside from your newly minted CEO being arrested on fraud charges, your CFO, Christopher Thorn, and bullshit accounting firm, Marcum llp, stepping down too, your stock is going to get smashed into clown pieces when it reopens for trade–whenever the fuck that might be.

Shares of KBIO have been halted since the downfall of Shkreli, who was summarily fired from the role of CEO at Kalobios.

To make matters worse, NASDAQ is delisting the stock, as they are uninterested in being associated with such cellar dwellers.

What goes up…

Put aside the fundamental concerns for a moment. Stocks do not move on fundies in the near term. They move on supply and demand, guided by emotions. Right now, people are greedy. They’re greedy little fuckers clamoring for some of that Xmas present money back. Traders are bearing witness to an epic short squeeze in oil and automatically want to fade it because they hate oil.

Let’s take the emotion out of it and view the movements according to Exodus.

This is an oscillator for the oil and gas exploration space, which is up 7% for the day. The chart you see is our predictive algorithm designed for this specific sector, taking into account the raw commodity movement, technical and fundamental factors of each stock in the group. As you can see, there are definable lines in the sand that can/have been traded on over the past year.

The chart is starting towards overbought, but not there yet. If we get a minor pullback in the sector, we can see the median return for this sector sprint by another 10-20% before it gets overheated.

My top pick in the sector is SN. Other commodity stocks that I like and own are PAH and FCX.